No Economic Recovery Without Supporting SME Wage Hikes

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Amid rising prices, sustained high levels of wage hikes are essential for Japan's economic recovery and growth. Taking this reasonable approach, on March 12, several major companies announced the results of the spring labor offensive (shunto). For major motor vehicle and electronics companies, such as Toyota Motor Corporation, their wage increases were the highest ever for the second year in a row.

There is also a growing drive to improve the treatment of non-regular employees. For example, the Aeon Group is raising the hourly wage for part-time employees by more than 7%.

We welcome management's continued high level of wage increases. At the same time, this trend needs to spread to small and medium-sized enterprises (SMEs).

*Retail prices of cabbage are about 2.6 times higher than normal at a market in Ota Ward, Tokyo (©Sankei by Takumi Kamoshida)*

Labor Negotiations Focus on SMEs

Labor-management negotiations in the SME sector are just getting underway in earnest. This sector accounts for 70% of all employment, making it a giant part of the economy. However, SMEs have yet to achieve stable increases and real wage growth that takes into account price fluctuations.

For example, the price of rice, a Japanese staple, continues to escalate with no sign of abating. To dispel the sense of stagnation in the Japanese economy, wage increases taking the cost of living into account need to take hold at SMEs.

The Japanese trade union federation Rengo has kept its spring 2025 benchmark target for wage increases at the same level as 2024, namely "5% or more." Nonetheless, it has set the target at "6% or more" specifically for SMEs. This is because the wage gap between large companies and smaller companies has widened since 2024's spring labor offensive.

To secure enough workers, small and medium-sized enterprises need to raise wages ー even if their performance has not improved. Of course, these companies must also strive to improve their business performance, such as by increasing productivity and securing funds to cover wage increases.

*Bags of rice are stacked inside a rice shop in Shibuya, Tokyo (©Sankei by Mina Terakochi)*

Large Companies Must Support SMEs

Large companies that place orders with SMEs are strongly encouraged to review their terms of business. If their smaller suppliers are to carry out sustainable wage increases, those increased costs need to be transferred to larger companies through their transaction prices.

Meanwhile, we note that listed companies are expected to post record profits for the fourth consecutive year. They should have ample funds to reconsider transaction prices in response to requests from SMEs.

The government has passed a Cabinet resolution to amend the Subcontract Act, which would prohibit large companies from arbitrarily deciding transaction prices when they place orders. Instead, they must first consult with the small and medium-sized companies that receive those orders. If wage increases are to be extended to SMEs, the government will also need to strengthen its monitoring of trade conditions.

Certainly, there are concerns about the future of the economy due to US President Donald Trump's tariff policies. That is all the more reason to extend wage increases to SMEs and thereby stimulate personal consumption.

It should be borne in mind that if momentum for wage increases slackens, then overall economic recovery will become more distant.